Beiersdorf Misses Profit Forecast, Attributes to Slow Luxury Brand Sales in China
In a surprising twist for the cosmetic and skin care industry, Beiersdorf AG experienced a significant dip in its financial performance, primarily due to the underperformance of its luxury brand, La Prairie, in China. The German conglomerate, known for its flagship products like Nivea and Eucerin, saw its shares plummet by 4.7% in early trading, positioning the company at the lower end of Germany’s blue-chip index.
The slowdown in the sales of high-end beauty products in China is attributed to the prevailing economic uncertainty that has notably impacted the country’s middle-class shoppers. This financial instability has not only reduced consumer spending both online and in physical stores but has also encouraged a more cautious approach towards luxury purchases among affluent shoppers. China’s economic growth, which has not met expectations in the latest quarter, further exacerbates this trend, indicating a shift in consumer behavior in the world’s second-largest economy.
For the first six months of the year, Beiersdorf reported mixed results across its portfolio. The company’s stalwart brands, Nivea and Derma, posted respectable sales growth of 11.1% and 8.3% respectively. However, La Prairie struggled significantly, with a 7% decline in sales, largely as a result of the challenging market conditions in China. This downturn has been a significant factor behind the company’s overall financial performance.
In terms of overall group sales, Beiersdorf recorded a 7.1% organic growth, reaching 5.2 billion euros ($5.7 billion) for the first half of the year. This growth was slightly below analyst expectations, which anticipated a 7.2% increase as surveyed by Vara Research. Analysts, including those from Stifel, have noted that the underwhelming performance of La Prairie overshadowed the strong sales of Nivea during the same period.
This sentiment of a sluggish recovery in China is also echoed by Beiersdorf’s French counterpart, L’Oreal, which anticipates the Chinese market to remain slightly negative in the latter half of the year.
Operating profit for Beiersdorf, excluding special factors, witnessed a decline, falling from 852 million euros in the previous year to 838 million euros in the first half of this year. This figure fell short of the average forecast of 890 million euros by analysts. Increased expenditures in marketing, research and development, and digitalization initiatives are cited as the primary reasons for this downturn.
Despite these challenges, Beiersdorf remains optimistic about its future performance. The company has reaffirmed its forecast for 2024, projecting a 6-8% growth in group sales and an operating margin that is expected to be slightly above the level achieved in the previous year. This reaffirmation comes amidst the backdrop of uncertain market conditions and the company’s efforts to adapt and evolve in a rapidly changing global landscape.
